India’s wedding season no longer a golden bet

India’s wedding season has long been held as a positive driver of gold prices, but its impact may be diminishing because the rupee is weakening and the demand for gold is increasing in other areas of the world.

“It used to be a pretty safe seasonal trade that worked the majority of time,” said Nick Barisheff, CEO of Bullion Management Group. “But it’s becoming less important and could be a tougher season than normal.”

Approximately 10,000 weddings are held in India each year from late September through January, the time between heavy monsoons and the summer heat. The brides often wear thousands of dollars worth of gold while family and friends offer bullion bars and coins as presents to the newly married couple.

Brooke Thackray, president of AlphaMountain Investments, said demand for gold tends to rise in the months leading up to the start of the wedding season as fabricators and jewellers get prepared.

As a result, the season has played a large role in the gold equity sector’s annual strength between August and the start of October. During this roughly two-month stretch, Mr. Thackray said gold stocks have been profitable in 17 of the past 25 periods, including 11 of the past 14, and the average gain was 7.2%.

Related

But India’s craving for gold may play a lesser role this year, because of the country’s struggling economy and, more specifically, its labouring currency. The rupee is down 13% versus the U.S. dollar since the end of January, making gold more expensive to buy in India. Consumer demand for gold in the country slid 29% in the first quarter this year.

Mr. Thackray said further sales weakness in India is a distinct possibility, but that doesn’t preclude gold from rising higher over the next two months. Investors tend to seek assets that are less correlated to the stock market during the often weaker summer months and, as a result, gold tends to do well in flat or negative equity environments.

“The exception occurs if the stock market suffers a severe correction, which will typically affect gold negatively,” he said. “Currently, gold is in a basing pattern, but it is starting to look appealing as it is gathering strength.”

Mr. Barisheff agrees that a weak rupee is a headwind for gold, but said consumers in India may choose to pay a higher price for gold jewellery because it is seen as an investment important for wealth preservation. “To them, it’s money and with the turmoil over the world, it is hard to say how they will react to a higher price,” he said.

Even if India’s demand for jewellery falls, Mr. Barisheff said there are other sources of demand around the world that potentially can take up the slack.

He noted China is now the No. 1 producer and consumer of gold, having recently surpassed India, and that most of the global demand for bullion is coming from central banks in countries such as China, Russia, India, Vietnam and South Korea.

“The impact of India’s wedding season isn’t quite what it used to be,” Mr. Barisheff said. “It may not be any less, but other areas of demand are more.”